ADVANCED ENERGY BLOG -- BILL HAGSTRAND

Shale industry evolution leads to chemical industry revolution

Blog Entry: April 12, 2013 4:30 AM | Author: BILL HAGSTRAND

BILL HAGSTRANDWilliam E. Hagstrand serves as a Senior Consultant for NorTech and is responsible for driving engagement in cluster opportunities from inception to successful completion. This includes identifying and cultivating potential opportunities for participating organizations and recruiting organizations to the advanced energy cluster.

As I eagerly await a chance to play golf after this particularly long winter, I'm reminded of the anticipation many of us feel about the burgeoning shale industry. That anticipation is particularly high in the U.S. chemical industry, which is seeing significant investment growth and a revolutionary change in the way a key chemical is being produced.

Our region has heard the optimistic shale industry employment forecasts. PricewaterhouseCoopers (PwC), for example, released bold numbers in 2011 claiming that by 2025 shale gas could add more than one million workers to the U.S. manufacturing industry while lowering the costs of raw materials and energy by $11.6 billion annually.

Even if this forecast falls short, the potential shale holds for the manufacturing sector, Ohio and our national economy is extremely significant. Several industries up and down the shale supply chain are gearing up to take advantage of that opportunity. One major beneficiary is the chemical industry, which is feeling the effects of the potential prevalence of natural gas and “wet gas” natural gas liquids in the Ohio Utica-Point Pleasant shale play.

The change occurring in the chemical industry is not simply evolutionary, it's revolutionary. The American Chemical Council (ACC) contends in a December 2012 Financial Times article that “the international chemical industry is undergoing its most profound upheaval in 75 years.” Just a few years ago there was hardly any indication of investment in the U.S. chemical industry. Today, more than $55 billion are planned for the development and growth of the U.S. chemical industry.

An impetus for the chemical industry revolution is the reduced price of natural gas, which is abundant in shale. The cost decrease has promoted a production increase in ethylene, a first step in the chemical industry value chain. Ethylene can be produced from ethane, which is abundant in the “wet gas” areas of the Ohio Utica-Point Pleasant shale formation.

Just a few years ago, ethylene in the U.S. was predominately produced from naphtha, which comes from crude oil. As the price of crude oil increased, the production of ethylene became more expensive. Alternatively, the decrease in cost to produce ethylene from ethane, given our growing supply of domestic natural gas and natural gas liquids, results in a three-to-one cost advantage over many other parts of the world that still depend on naphtha (crude oil) for ethylene.

Ethylene is a building block for the chemical industry. Take a look through your cupboards at home or your office supply room. Polyethylene is used in film applications for packaging, carrier bags and trash liners. Ethylene oxide is a key raw material in surfactants and detergents used in products from shampoo and perfume to plastics and adhesives.

Ohio is already part of the strong chemical and polymers. The Ohio Chemistry Technology Council contends that chemistry companies in Ohio directly employ 45,865 people and that for every chemistry industry job in Ohio an additional 3.4 jobs are created within the state. Chemical industry jobs earn an average wage of $64,600, which is 24 percent higher than the average manufacturing job.

Several polymer companies with headquarters in Northeast Ohio are on Fortune's 1,000 largest companies list. Akron is, after all, known as the “Rubber Capital of the World”:

• The Goodyear Tire and Rubber Company of Akron is one of the world's leading tire companies and registered $21 billion in sales in 2012.

• PolyOne Corporation, headquartered in Avon Lake, reported 2012 revenues of $3 billion. The company is a global provider of specialty polymer materials, services and solutions, with several facilities located throughout Northeast Ohio.

• A. Schulman, headquartered in Akron, is a leading international supplier of high-performance plastic compounds and resins, which are used as raw material in a variety of markets. The Company has over 30 manufacturing and support facilities in North and South America, Europe and the Asia-Pacific region.

• Owens Corning of Toledo and Cooper Tire of Findlay are other examples of successful Ohio companies that are heavily involved in the chemicals and polymer industry.

The current strength and promising outlook for the region's chemical and polymer industry is bolstered by the abundance of natural gas found in shale and the lower ethylene production prices this affords. Ethylene goes into thousands of products that are polymer related and its production from ethane is the first step in the chemical industry value chain. Significantly reduced manufacturing production costs are a major benefit to the region, which can lead to a boost in the economy and good paying jobs for Northeast Ohio.

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